Construct the Right Plan

With more than 200 iShares Funds available and designed to track specific indexes, advisors can use the modularity of ETFs to create portfolios with different asset class exposures and risk profiles. iShares ETFs can provide core coverage of a chosen asset class, and wherever you apply iShares Funds, you can help bring the important benefits of cost efficiency, transparency, and help to manage the risk in your clients' 401(k) plan.

Index-based investing offers several benefits, including typically lower costs and benchmark-tracking performance. As advisors selecting fund managers know well, good active managers exist but trying to identify them in advance is challenging. It makes sense to combine them in a portfolio with index funds to help manage risk more effectively.

Demonstrate to your clients how you add value by customizing portfolios within a 401(k) plan using iShares ETFs.

Portfolio Completion

One way to manage risk is to diversify across asset classes, styles, geographies, and sectors. iShares Funds give you instant diversification within virtually any segment.

Core/Satellite

iShares ETFs can also be an effective tool in a core/satellite approach that blends index and active strategies. This strategy combines exchange traded funds at the "core" of the portfolio, with actively managed mutual funds, individual securities, or separately managed accounts as the "satellites," for each asset class in a client's portfolio. The core component seeks to match the market performance by closely tracking an index, while the actively managed satellites seek to outperform their respective targets.

While iShares ETFs and mutual funds each hold baskets of securities, some key differences do exist. iShares ETFs trade on exchanges intraday at market price, which may be greater or less than net asset value, and shares of iShares ETFs are not individually redeemed from the fund. In addition, iShares index ETFs are passively managed; they seek to track a market index, before fees and expenses, and do not attempt to outperform during rising or declining markets. iShares ETF performance may diverge from the ETF's underlying index.

In comparison, mutual funds are accessed directly from the fund company or through a select broker, pricing generally occurs once a day, and investors buy or redeem shares at the end-of-day net asset value, less any applicable fees. Some mutual funds may charge redemption fees. Mutual funds may be either actively managed or track an index. The structure of both active and index mutual funds is similar, but the management strategy differs. Active mutual funds seek to outperform their benchmark while the goal of index mutual funds is to track their index. Consequently, active funds typically charge more than index-linked products such as an exchange traded fund, or an index mutual fund, for the increased trading and research expenses that may be incurred.